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Apple Is Not a Big Positive for Best Buy: Analyst

John Valentovic|Special to CNBC.com
Monday, 26 Mar 2012 | 2:15 PM ET

While 13 percent of all iPhone purchases are coming from Best Buy, Apple may not be as big of a positive for Best Buy as the market might suggest, according to Oppenheimer and Co.’s Brian Nagel.

Best Buy
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Best Buy

“Over time, it actually hurts Best Buy,” Nagel told CNBC on Monday. “Apple products tend to cannibalize sales of higher-margin products in other Best Buy stores.”

Best Buy may generate more traffic by selling Apple products, but ultimately it limits the amount of other products it can sell, the analyst said. In addition, he assumed that the profit margin that Best Buy makes from Apple is quite low, and much lower than some of the other products Best Buy sells in its stores.

Nagel noted that the country has hit a bit of an “electronics lull,” with the holidays over and the mild weather nationwide causing people to spend more time outdoors. The negative effect Apple has on Best Buy, combined with the slow second quarter in terms of electronics sales, have Nagel urging caution to those thinking about investing in the company.

“With Best Buy right now I think the stock is probably getting a little ahead of itself,” Nagel said. “I’ve got a ‘perform’ rating at a $27 price target, which is where the stock is right now, but this bounce we’ve seen lately is getting ahead of itself.”

Best Buy's iPhone Sales
New data shows that Best Buy is selling almost as many iPhones as Apple itself. Insight on Best Buy's relationship with Apple and what it means for investors, with Brian Nagel, Oppenheimer & Co. senior equity research analyst.

Many industry watchers have called into question the future of Best Buy, as online sites such as Amazon.comprovide consumers with the opportunity to purchase electronics online, often at discounts.

“There is a lot more competition from Amazon and other online retailers where customers to some extent are using Best Buy’s stores as a showroom,” Nagel said. “There’s a lack of a product cycle and they’re facing an uphill battle.”

Additional News: New iPad Sets New Creative Bar for Tablets

Additional Views: Amazon Could Mean Trouble for Best Buy, Others

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Disclosures:

Disclosure information for Brian Nagel was not immediately available.

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